Chinese say green battery technology leak fears overblown

By Norihiko Shirouzu| BEIJING

BEIJING Aug 17 Foreign car makers in China
including General Motors Co and Toyota Motor Corp
last year thought they had scored a victory over
Beijing's efforts to strong-arm them into sharing cutting-edge
electric car technology.

But that could prove compromised as leading Chinese auto
parts firm Wanxiang Group Corp's $465 million investment in A123
Systems Inc, a struggling U.S. maker of lithium-ion
batteries, may help China unlock the secrets to critical and
advanced green-car technologies.

The investment has ruffled feathers in the run-up to the
presidential election in the United States as A123 receives
government grants tied to it keeping production and jobs in the
U.S. during an economic downturn that has seen unemployment
levels remain stubbornly above 8 percent.

Some industry executives including engineering chiefs from
two global auto makers, who did not want to be named because of
the sensitivity of the matter, expressed concern at the prospect
that A123 could lose control of its fiercely guarded battery
design and manufacturing know-how. They are particularly worried
that Wanxiang might shift part of A123's research and
development activities to China - if the deal wins U.S. and
Chinese government approval.

"I don't care if A123 manufactures more battery cells and
packs in China. That wouldn't jeopardize its technological
advantage," said a chief engineer at one global automaker. "But
showing what's inside their black box ... the technology that
makes those battery cells packed with energy, to its Chinese
investor, which has its own battery business, is completely
another matter."

There are several types of lithium-ion battery - an advanced
energy-storage device that has made the electric car a possible
alternative to gasoline-fueled vehicles. A123's technology,
which uses iron-phosphate, is seen in the industry as having
better chemical stability, making it safer for electric cars.

The enabling technology was in part developed by a
Massachusetts Institute of Technology (MIT) professor who is one
of A123's founders, and is patented. The 'nano technology'
involved, for instance, shrinks lithium particles to nano
dimensions, helping boost a battery cell's energy density, and
putting more power into a smaller box.

Wanxiang's lifeline to loss-making A123 could see it end up
with around an 80 percent stake in the Massachusetts-based
battery maker, and four of the nine board seats.

FEARS OVERBLOWN

Pin Ni, a son-in-law of Wanxiang's founder and head of the
group's U.S. operations, said his company would not do anything
to harm A123, which listed on the Nasdaq stock exchange in 2009.
"Obviously we're going to try to grow the company; we're going
to do what's best for the company," Ni told Reuters by
telephone, declining to elaborate.

People close to Wanxiang and familiar with its A123
investment, said the company would behave responsibly with
A123's intellectual property, and noted the U.S. firm already
produces advanced batteries in China.

Fears of A123 losing control of its intellectual property
are overblown, they said.

Wanxiang is a major auto parts supplier and has a relatively
large presence in the United States having bought up distressed
parts makers over the past decade. It formed a joint venture
which bought and turned around Driveline Systems, an axle maker
in Illinois, and has taken over parts operations from Ford Motor
Co, among others in the U.S. Midwest.

Wanxiang's existing joint venture in China with Ener1 Inc
, a U.S. company which this year emerged from a
Chapter 11 bankruptcy restructuring, produces manganese-based
lithium-ion batteries.

A person close to Ener1 said the company has been "extra
cautious" not to allow Wanxiang engineers to interact with its
U.S.-based battery scientists and engineers because of fears of
losing know-how to its Chinese partner.

Neither A123 nor Ener1 responded to requests for comment for
this article.

SLOW BURN

A123 has battery contracts with BMW, China's SAIC
and U.S. startup Fisker Automotive, and is slated to
provide batteries for GM's upcoming Chevrolet Spark EV. It was
hit this year by a defective battery recall and warned last
month that it had only about five months of cash left.

Two years ago, China, the world's biggest autos market,
began drawing up plans to corral foreign brands into joint
ventures that would give Beijing more access to the latest
battery technology.

Fearing battery technology leaks, the auto giants
complained, and China watered down its demands, allowing foreign
automakers to own 50 percent of local ventures, rather than just
a minority stake - but not before foreign automakers such as GM,
Toyota and Nissan Motor Co Ltd had taken steps to
protect their advanced technology by making cars in China with
cheaper one- or two-generation-old technologies.

The spread of green technology has been slow in part because
of its high cost and the lack of public charging facilities.

And the expected boom in electric cars - which had prompted
battery makers to build too much capacity - just hasn't
materialised. In the United States, January-July electric
vehicle and hybrid sales totalled 270,000, just 3 percent of
total car sales, according to green-car website Hybridcars.com.

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